Crisis in Iceland: Deposit-Guarantee Scheme Failure and State Liability

Abstract

On January 28, 2013, the Court of Justice of the European Free Trade Association States held that Iceland was not required to compensate foreign depositors of Landsbanki, an Icelandic bank, when the deposit-guarantee scheme failed to reimburse depositors following the 2008 financial crisis. The court supported its conclusion with the text of the Directive that established deposit-guarantee schemes as well as policy arguments regarding consumer protection and moral hazard. The court also found that Iceland’s failure to repay foreign depositors did not constitute an act of discrimination. Although the court correctly interpreted both the text and policy goals of the Directive, the precedential value of the court’s decision may be limited due to the severity of the 2008 crisis.